Carbon Rises as Industry Concerned Allowances Will ‘Skyrocket’

Sept. 13 (Bloomberg) -- European Union carbon permits rose
for a fourth week as a chemicals industry lobby group in
Brussels said factories in the region were concerned prices will
surge.

“Prices will skyrocket when demand exceeds supply of
allowances,” Peter Botschek, director of energy, health, safety
and environment at the European Chemical Industry Council, said
yesterday in a conference call with Bloomberg News. “Every
industrialist in Europe will see that. Either you increase your
efficiency and innovate, or you leave Europe.”

December benchmark permits advanced 1.5 percent this week,
extending last week’s 17 percent gain. The European Commission
on Sept. 5 scaled back national requests for free allowances by
an average 12 percent through 2020. Factories from 10 main
industries covered by the market including steel and cement will
get about 5.5 billion metric tons of allowances in the period,
according to a commission statement. They are valued at about
29.7 billion euros ($40 billion) at today’s prices.

Factories are worried prices will rise and they won’t get
the permits they need, Mark Owen-Lloyd, a trader at Clean Energy
Group Ltd. in London, said today by e-mail.

“We have seen big buying from 4.20 euros onwards from
industrial clients,” Owen-Lloyd said. “They are happy to put
them aside, believing the price will be significantly higher
next year based on the belief that the emissions trading system
cannot sustain such a low carbon price for ever.”

Benchmark December permits rose to the highest in eight
months, gaining as much as 3.6 percent to 5.83 euros on the ICE
Futures Europe exchange in London. The contract closed at 5.41
euros a ton, down 3.9 percent from yesterday. It’s dropped 34
percent in the past year as lawmakers seek to deal with a glut
in supply.

In total, the commission will hand out about 6.6 billion
tons of free allowances, subject to a review of its policies
next year, it said in the statement.

‘Filling Pockets’

Nations will sell allowances they don’t hand out for free.
The scaling back is “filling the pockets of government rather
than generating growth,” said Hubert Mandery, executive
director of the chemicals industry council.

“It’s another blow for people wanting to do business in
Europe,” Mandery said yesterday on the call.

Poland will sell allowances for the first time on Sept. 16.
Volume that day, including permits sold by other EU nations,
will be 7.1 million tons, the second highest ever for a single
day, according to data compiled by Bloomberg. The record was 8
million tons on March 19.

The chemical industry is concerned that proposals to
tighten the emissions cap too fast will drive production
elsewhere, he said.

“There are some very wild ideas,” he said. “There are
other places in the world at least as interesting as Europe for
investment. With regards to climate policy, don’t go for what is
desirable, go for what’s affordable.”